Back when I was managing money, I was told that my fund was described as a macro fun that uses single stocks to express an opinion. Macro funds tend to use stock indices, bond and commodity futures to express views, but I found it more efficient to use single stocks. Indices are designed to go up, and can never go to zero, so are an inefficient product for bearish bets. Individual stocks can go to zero, so are far better for bearish views. This led me to think a far more efficient hedge fund model would be be long stock indices, and then to short individual stocks against it, while in practice most hedge funds do the opposite. This is why I think long short hedge funds have been so poor since 2008, if not before. Macro funds are probably looking bad again as the S&P 500 is breaking away from its old relationship with job openings (hat tip to Michael Hartnett at BOA for this chart).
Having been caught out by going bearish in 2016 and in 2019, when it looked like the US economy was slowing, I have learnt the hard way we are no longer in a “macro market” but a political one, at least at the top end. My top short remains TLT, which continues to draw capital even as it incinerates it.
But 2023 has certainly been a year where the strategy of long S&P 500 future, and short single stocks names would have been very good. Let’s look at one short themes that have worked, and how much juice this theme might have left in it. (This is a paid post, but I am offering a 7 day trial if you subscribe to www.jarrettclarkracing.com - another substack I write about my son’s karting career)